RTD Coffee Perks Up

Some will remember when it came in a ceramic mug— either at home or at a restaurant. Others think of it to go, in a paper or Styrofoam container, at the corner deli or drive-thru. It was served hot. Milk and sugar were added at the customer’s discretion.

Now, there is the growing Ready-to-Drink (RTD) coffee market—a full-fledged segment unto itself—packed in glass or plastic bottles (cans if you prefer), stored cold, premixed with condiments, and baring many of the same logos already familiar to java drinkers.

“Early on, it was difficult challenge to convince people to go for cold coffee,” says Gary Hemphill, managing director of research for Beverage Marketing Corporation (BMC). “Obviously that’s no longer a hurdle for the category. However it does remain a rather small, and sometimes erratic category.”

According to research by the New York based BMC, the category has been more of a roller coaster than a rocket. In 2008 volume increased by 21.1 percent, reaching a record level of 40.3 million cases, and wholesale dollars grew by 14.3 percent to hit $809.3 million. As the recession struck, RTD coffee did not fare well, with a 2.2 percent decrease in volume and a 5.4 percent decline in sales. BMC notes that consumers saw the product as an “inessential extravagance.” By 2010 things were improving, with volume up by 2.4 percent and dollars up by 3.5 percent and in 2011 wholesale dollar sales shot up by 10.2 percent with volume increasing by 9.9 percent. Volume grew by 12.1 percent in 2012, and dollars moved up by 9.5 percent.

But this still pales in comparison with traditional coffee, says Hemphill. “Coffee is a huge category. When you look at ready-to-drink coffee versus coffee, the numbers are much smaller.”

There were some that joined the fray and quickly departed. Some manufacturers changed brands, notably Coca-Cola North America, first offering Godiva Belgian Blends (with the Campbell Soup Company, that owned the brand) in 2006, and ceasing production in 2008, according to BMC. It then came back with Illy Issimo, a RTD coffee in cans in a variety of flavors including latte macchiato.

“One of the challenges with a ready-to-drink format, is finding a formulation that can have broad popularity,” says Hemphill. Another thing working against the format is that with so many coffee shops in existence, consumers easily can order a coffee—hot or cold—exactly how they would like it to taste.

“In the case of coffee, people’s tastes are specialized, detailed, diverse,” explains Hemphill. “Finding a formula that appeals to a large number of consumers continues to be a challenge. “

It should come as little surprise to anyone that the dominant name in coffee in the United States—Starbucks—is also a leader in the RTD category thanks in large part to one of their flagship beverages, the Frappuccino, produced and distributed in partnership with PepsiCo. Thanks to its PepsiCo relationship, the 9.5 ounce glass bottle Frappuccino quickly became ubiquitous at retailers across the country, with flavors like Mocha, Coffee, Vanilla, Caramel as well as light varieties in single bottles as well as four-packs.

“Starbucks has an 80 percent share in the category with their collective brands,” says Hemphill. “It’s a mega name in coffee and Pepsi has a great distribution network. The combination of the two work quite well.”

Venturing out a little further on the branch the coffee giant launched its Starbucks Refreshers Sparkling Green Coffee Energy Beverage line—juice blended with green coffee extract, ginseng, and sweeteners. it’s available in several flavors like Strawberry Lemonade and Pomegranate. It’s currently available in 15 global markets, according to BMC.